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Romer, Christina D., and
David H. Romer. 2010. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks."
American Economic Review,
100(3): 763-801.

Show Article Details

DOI: 10.1257/aer.100.3.763

Abstract:This paper investigates the impact of tax changes on economic activity. We
use the narrative record, such as presidential speeches and Congressional
reports, to identify the size, timing, and principal motivation for all major postwar tax policy actions. This analysis allows us to separate legislated changes into those taken for reasons related to prospective economic conditions and those taken for more exogenous reasons. The behavior of output following these more exogenous changes indicates that tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those
obtained using broader measures of tax changes. (JEL E32, E62, H20, N12)

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